Forex Trading Review Guide

Friday, August 27, 2021

Powell Speech at Jackson Hole May be a Non-Event and Here’s Why

Greenback and US equities hold in a wait-and-see stance before Powell Jackson Hole's speech. The prices have been staying range-bound almost the whole week:The Fed chair is unlikely to give details on timing and pace of QE tapering however, what should give us insight about the Fed tightening bias is tone of remarks, assessment of economic recovery, growth and inflation outlook.The main part of risk-off related to uncertainty surrounding the Jackson Hole event apparently took place last week, when the S&P 500 dropped from 4475 to 4363 points. However, the index quickly erased the decline and even set a fresh ATH, without even waiting for the outcome of the speech. This may indicate that some of the informed market participants are not waiting for revelations from Powell that would impact the odds of QT this year:If Powell downplays impact of Delta strain on economic activity and prefers to point out progress in employment, markets will likely interpret it a signal that the Fed will begin policy tightening this year. In this case, the dollar and bond yields are likely to respond with more upside while risk assets may struggle to make additional gains on the back of fears of rising discount rate.There is small likelihood that Powell will instead place emphasis on headwinds and risks for employment and economic activity. It’s worth to note that incoming US data started to indicate fading momentum, which is seen from 10 points drop of consumer sentiment index from U. Michigan in August, sluggish US retail sales in July, continued pullback in broad PMI indices. However, as we discussed earlier this week, the dynamics of employment indicators in the US remains quite positive, firms continue to suffer from labor shortages and are ready to increase hiring, so there is apparently less need to maintain anti-crisis stimulus for the Fed.Yesterday "minutes" of the July meeting of the ECB showed that the central bank is still far from discussing reduction of asset purchases. The main risk for EURUSD now is further divergence of the ECB and Fed policies, especially if Powell leaves the door open for September action today. In my view, the pair will lean towards 1.17, unless, of course, Powell today gives concrete hints that the Fed is not going to change the stimulus level either, which seems to be an unlikely scenario.

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Live Analysis ahead of the eagerly awaited speech by Chairman Powell

There were several hawkish Fed speakers today and markets are positioning for Fed Chair Powell to map out a taper schedule today, although it seems at this point a taper tantrum can be avoided. Investors are likely to be cautious ahead of the speech.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Share tips of the week - 27 August

Six to buy

Jefferies Financial Group

Barron’s

Jefferies is not the first investment bank to come to mind when you think of Wall Street. But it’s a well-managed company, increasingly able to take on bigger and better-known rivals. It has a larger market share than Barclays and Credit Suisse and may benefit from European banks pulling back from US capital markets. Analysts expect the capital-markets environment to be “stronger for longer” and Jefferies looks poised to benefit from the trend. $35.39

Genuit

Investors’ Chronicle

Plastic-piping producer Genuit has seen increased earnings due to the residential housing boom. Profits were £183.8m in the first half of 2021, up 63.7% from 2020 and 17.8% from 2019. Rising input cost pressures are “the only fly in the ointment”, but the firm has been good at passing the inflation onto customers. It predicts demand for commercial work will stay below 2019 levels for the next two years, but remains bullish on its prospects, partly thanks to its HS2 contract. 686p

Disney

Shares

Disney’s earnings were better than expected for the first quarter and revenue stood at $17.02bn for the three months ending 3 July, a 45% increase year-on-year. Its streaming service, Disney+, now has 116 million paid subscribers, ahead of analysts’ expectations of 114.5 million. Covid-19 restrictions are lifting, which will allow for the reopening of its theme parks and resorts. These are highly profitable operations that also strengthen its connection with customers, cementing its position as “the world’s leading entertainment company”. $179.09

Poolbeg Pharma

The Mail on Sunday

Firms spent £1.2trn looking for treatments for cancer, diabetes and heart disease between 2010 and 2020. Now, in light of the coronavirus pandemic, more attention is being directed towards infectious diseases. Poolbeg Pharma is developing a product aimed at severe cases of flu and similar diseases – potentially even Covid-19. Early-stage trials around its treatment have “genuine potential” and it has other products in the pipeline that it’s hoping to develop and monetise quickly and cheaply. A young biotech firm is not for the cautious, but it could “prove an exciting investment for the adventurous investor”. 9p

Rolls-Royce

The Sunday Telegraph

Rolls-Royce had to spend “colossal sums” on its aircraft-engine business before any money was recouped. The firm “started from nothing… now it can take a breath and start to make a return”. It loses money when it sells an engine, but gradually makes it back through long-term service agreements. Revenue collapsed during the pandemic, but this will recover as long-haul travel picks up. Weak demand for new engines – aircraft makers have no plans to develop new planes – means it’s no longer throwing money at development. This will tilt the firm away from “loss-making supply and towards profitable maintenance”. Shares are 70% lower than they were two years ago, which presents an opportunity. 110.16p

Ibstock

The Sunday Times

Building-materials prices have rocketed due to supply-chain disruption and Brexit-related delays. Ibstock, a brick and concrete-materials maker, is “critical” to the construction market, but its shares have only gained 13% this year compared with the sector’s 23% rally. Rising freight and labour costs are a problem, but it was good at coping during the crisis by cutting overheads, which should help with higher profit margins “long after we’ve all stopped talking about Covid-19, Brexit and the HGV crisis”. 234.40p.

...and the rest

The Daily Telegraph

Semiconductor firm AMD has developed a cluster of smaller chips that work together to achieve what traditional microprocessors do on their own. This innovation is promising and could see it take a bigger share of the market. Buy ($107.56). Insurance firm Legal & General posted a 14% rise in operating profits. The firm is in the “business of long-term savings”, and so is well positioned to meet the emerging middle classes’ desire for “a more secure life”. Hold (262p)

Investors’ Chronicle

Analysts expect a “hefty increase” in full-year cash profits at miner Hochschild. Buy (155p). Promotional merchandise firm 4imprint struggled during the pandemic, but it’s on the way to matching its 2019 trading levels. The interim dividend resumed at 15 cents per share. Hold (3,070p).

Gold has “lost a lot of its shine” lately, but Wheaton Precious Metals delivered “a modest beat to expectations”. The firm buys precious-metal production in projects where it’s a by-product to other metals, which allows it to secure deals at a discount. Revenue and cash flow hit record highs of $655m and $449m respectively, which boosted the second-quarter dividend to $0.15 per share, the fourth quarterly dividend increase in a row. Buy (£31.78).

The Mail on Sunday

Prospects for insurer Aviva seem brighter than they have in a while, with strong interim results and plans to return cash to investors. This year’s dividend is forecast to be 22.05p, rising to 25.36p in 2022. The chairman has been buying shares – “almost always a positive sign”. Buy (418.60p).

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USD Risks Into Powell's Jackson Hole Speech

Powell Up NextToday’s commentary from Fed chairman Powell at the Jackson Hole Symposium is attracting a huge amount of attention. Given the market’s ongoing tussle to try and gauge the timing of any forthcoming Fed tapering, today has been touted as a key opportunity for the Fed chair to offer clarity. On the back of the recent bumper July labour reports, Fed tightening expectations had ratcheted higher with an increasing number of traders expecting to hear Powell lay the out the path for tightening over the coming months.Delta ConcernsHowever, the picture has become a little muddier over the last fortnight in response to the surge in Delta variant numbers in the US, and globally, which threaten to derail the economic recovery. While an increasing number of Fed members had been voicing their support for tapering recently, this support has become a little more diluted over the last week and the question now is whether the ongoing uncertainty around the pandemic will be enough to see Powell refrain from giving any tapering signals.Powell To Strike A BalanceWe recently saw the RBNZ unexpectedly hold off on hiking rates as a reaction to the fresh outbreak of the virus and we have heard other central banks too warning over the growing downside risks from this latest wave. With this in mind, expectations ahead of today’s meeting have become diminished. It now appears more likely that Powell will look to strike a balanced, cautious tone acknowledging the improvements in the recovery and the positives, where there are, while also highlighting the ongoing risks and uncertainty which the central bank needs to manage.Hesitation Among TradersWith the Dollar down from last week’s highs, there is clearly trepidation heading into this event. If Powell does refrain from offering a tapering signal, this is likely to cause short term disappointment in USD, sending the greenback lower. However, with the August labour reports due next week, any correction might prove to be short lived and a solid set of results next week would likely reignite tapering expectations just as strongly. On the other hand, if Powell comes through today and delivers a tapering signal, this would likely catch the market off guar and see USD sent firmly higher into next week with the prospect of strong August NFPs furthering the rally.Technical ViewsDollar Index (DXY)The recent move higher in DXY has seen plenty of bearish divergence on both MACD and RSI indicators. With price failing at the latest test of the 93.40 level, reversing beneath, the focus now is on the test of the bull channel low. If this holds, the focus will stay on further upside in the near term. However, a break below there will put the focus on 92.07 and 90.98 thereafter.

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The great trucker shortage, blaming Brexit for everything, and why now is a good time to buy UK stocks

The UK is facing shortages of everything from chicken to microchips. Is Brexit really to blame? Merryn and John discuss the boom-bust nature of the trucking industry, the shifting power balance in the labour market – and look at why now might be a good time to follow private equity into the UK.

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How to capitalise on the secondhand car boom

Getting your hands on a new car today is “about as difficult as trying to buy a four-pack of toilet paper a week into the coronavirus pandemic last year”, says Rob Hull for This Is Money.

]The global computer chip shortage means that the waiting time for some new models now runs from five months to over a year. Now that pressure is carrying over to the secondhand market, with average prices for used cars rising 14% year-on-year in July, according to Auto Trader.

Buying a used car can feel like a minefield”, says Will Kirkman in The Daily Telegraph. Legally, cars sold by a dealer must be “of satisfactory quality” and “fit for purpose”. Private sellers, by contrast, are merely obliged to sell a vehicle that is “roadworthy”. A car with outstanding finance or that has been written off in Category A (scrap only) or B (body shell must be scrapped) cannot be legally sold. Keep a copy of the original advert in case you need to later prove that the vehicle is not as described.

However, going to court is an expensive hassle, so do your research to avoid any problems. Verify the car’s MOT history at gov.uk/check-mot-history and consider paying for a check from a company such as HPI that will tell you about outstanding loans or whether the vehicle has been stolen or written off.

Pre-pandemic, less than 1% of used cars were sold online but that is changing fast. From online listing sites to a new generation of retailers that let you order a vehicle to your door much as you would an Amazon package, digital disruption is finally coming for cars.

Traditional dealerships are also changing, Umesh Samani of the Independent Motor Dealers Association tells The Times. “With the internet everyone can see the price of each model so dealers have to offer a competitive price in the first place... Haggling is disappearing because everything is so transparent.”

How to sell

If you want to sell, the quickest approach is to use an online car buying service, such as We Buy Any Car or Cazoo. By entering a few details into a website a seller can quickly get a valuation for their vehicle. But you pay for that convenience. “Our undercover research... found that five out of six of our mystery shoppers would have been better off selling to a dealer – in one case, by over £2,000,” says Adrian Porter of Which.

A private sale is “almost certain” to net more for the seller. And be aware that online valuations from car buying services can be cut once the vehicle has been inspected, says Andrew Charman for The Car Expert.

Private sales have come a long way from the days when you would “park the car outside your house with a ‘for sale’ notice in the windscreen and hope for a buyer to magically appear”.

Many sales now take place through the online marketplaces, most of which leave buyers and sellers to sort out the details between themselves. “Online bank transfers are the best way to get paid, and these can be done quickly via the Faster Payments or CHAPS systems,” says Auto Trader.

If you don’t want to hand out bank details then “cash is an alternative, but... arrange for the handover to happen at a bank”, where the staff can count the notes and make sure they are genuine before you hand over the keys.

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What investors need to know about the return of dividends

In investment terms, dividends payouts were among the biggest casualties of the Covid-19 pandemic. Companies slashed their payouts back to 2017 levels on a global basis, according to data from fund manager Janus Henderson, with the UK market being hit particularly hard.

And yet what could have been a nightmare for dividend-dependent investors has turned out to be far less damaging than feared. According to the fund group’s latest global dividend index, payouts will recover pre-Covid-19 highs within a year.

What happened? Unheard-of government support for businesses and employees, combined with a surge in demand as restrictions eased, meant that companies found they had been overly pessimistic.

Banks reversed bad debt provisions, while firms across the board found that their main problem was meeting customer demand rather than managing a decline.

Yet there are a few useful lessons that dividend-focused investors should learn from this near-miss. Firstly, UK investors should note that while payouts are recovering fast, UK dividends may not get back to 2019 levels before 2025. Companies have taken “the opportunity to reset payments at more sustainable leves”, Helen Bradshaw of Quilter Investors tells the Financial Times, as payout ratios (see below) were stretched in several sectors even before Covid-19 struck.

Oil major Shell’s chief executive Ben van Beurden is upfront about it: “We felt that our dividend needed to be reset... the gap between our dividend payout and free cash flow was simply too large.”

This is good news – it implies that if you’re buying UK stocks just now, then dividend payouts should be on a more sustainable footing than they have been in some time. On the other hand, it shows the importance of diversifying. The FTSE 100 index is a high-yield index, but there is more to dividends than yields.

Growth matters too. So it’s even worth looking at regions that may seem to have less recovery potential – Japanese stocks barely cut dividends in 2020 yet saw “strong” 11.9% underlying growth in the past year.

But the most important lesson is this: don’t get too hung up on dividend income. Yes, dividends are great – they remind managers of who they’re working for (shareholders) and they’re a transparent way to return cash.

However, if you are at the stage of your investment life where you are relying on your portfolio for regular income rather than building a nest-egg, then dividends should only form one part of that strategy.

Other income-generating assets such as property and bonds are key, while ensuring you always have a cash cushion of one or two years’ living expenses will help to ensure you aren’t forced into cashing in investments at exactly the wrong moment.

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Why it pays to invest in outsourcing despite its scandalous record

It seems absurd now that in the second half of the 20th century the main business of government – apart from the military and emergency services – was to own and operate businesses.

Yet this was the legacy of total government control during World War II, allied to a subsequent explosion of the state’s role in social security, health and education (still the three largest areas of government expenditure today).

Hence it largely owned and operated almost all public transport, trains, planes and buses, coal mines, steel mills, the docks and harbours, telephony, radio and most TV. It controlled over 95% of all electricity, gas and water production, became (briefly) the largest car manufacturer, the largest shipbuilder and the dominant housebuilder.

At the local level councils were big business, in home and office building, utilities, recreation, rubbish collection and sewage. Some even owned pubs, breweries and theatres.

The problem was simple. Central and local governments are incompetent when it comes to running businesses. As a result, between the mid-1960s and early 1980s a common moniker for Britain was “the sick man of Europe”. Something had to give.

A Conservative government was elected in 1979 after a wave of high inflation, low growth and massive industrial unrest. It saw outsourcing as the silver bullet to improve growth and productivity while also meeting the ideological aims of breaking the power of union – which, whatever your politics, had become a state within a state – along with smaller government and a leaner civil service. Modern outsourcing was born.

The birth of outsourcing

The initial steps were timid, selling shares in the old empire-wide telephone company Cable & Wireless (most of which has since been bought up by a variety of companies) and the aeroplane manufacturer British Aerospace (now BAE Systems, a top-ten defence company globally).

These experiments and further electoral success opened the way for a mass sell-off of profitable businesses – starting with British Telecom in 1984 – and the closure of those that had lost their comparative advantages, such as steel, mining and shipbuilding. And most unusually, the world followed the UK’s example.

Alongside these headline-grabbing sales, local authorities and government departments were cajoled or coerced via funding cuts to imitate the “modern” private sector. (The inverted commas reflect the fact that pre-war, many giant corporations attempted to control the entire supply chain.

The best example was Henry Ford, who tried to own the car-manufacturing process from rubber plantations – for tyres – to steel mills. Despite booming sales, he was narrowly saved from bankruptcy by military contracts in World War II.) Slowly, functions once viewed as core – such as payroll or rubbish collection – were farmed out.

Perhaps surprisingly, the Great Leap Forward and the first signs of long-term problems happened under the Labour government of 1997-2010. It took the good and bad smaller experiments and went for broke, most infamously in private finance initiatives (PFIs) and also involving public private partnerships (PPPs), again – to their cost – widely imitated overseas.

The ideology was simple: “choice and competition” would spur efficiency and performance across the public sector, provide better value for money and by a sleight of hand, keep rapidly rising borrowing “off balance sheet”, thus making government debt look artificially low. But PFIs proved disastrous.

In 2006, St Barts Health Trust, the largest in England, signed a near-£1.2bn PFI contract. By the time it ends the cost will end up being more than £6bn. Overall, the £13bn of PFI funding for hospitals for NHS England will end up costing £80bn by the time the last contract ends in 2050.

PFIs were not confined to hospitals, but included many other areas from schools to street lighting. In 2018 the now-Conservative chancellor, Rishi Sunak, announced the end of new PFI contracts, but the damage has been done and the same chancellor pledged to re-brand PPPs instead – similar structures under a different name.

Outsourcing blunders are plentiful

Health and school-related PFIs gave outsourcing a bad name in terms of value for money and the instances of outsourcing blunders would fill a library. One report by Reform, an independent think-tank, analysed investigations by the National Audit Office (NAO), Parliamentary select committees and other statutory bodies on £71bn-worth of outsourcing contracts between 2016 and 2019. Of this, £14bn was found to have been entirely wasted (the report did not analyse whether the other £57bn represented good value).

The largest single cause of waste was the Ministry of Defence (MoD), which accounted for 27% of the total, including a 17-year delay in decommissioning nuclear submarines and a failed army recruitment scheme (run by Capita). The MoD has serious form when it comes to wasting money; my favourite remains the Eurofighter/Typhoon aircraft. At the turn of the century the MoD/RAF decided to save money on its £105bn order by removing the nose cannon as it was considered outdated. Even to a layman, a fighter without a gun is a bizarre decision at the best of times.

But it so changed the aerodynamics that they then had to put concrete in the nose. This made the dynamics worse, so eventually the cannon was reinserted, but so much money had been wasted that the order had to be more than halved, seriously affecting the UK’s air defence capabilities.

Reform also highlighted some smaller losses – though still huge sums of money. Learndirect, an adult education and apprenticeships quango, was privatised in 2011. The main beneficiaries were the new private-equity owners, an arm of Lloyds Bank, who extracted tens of millions of pounds. The programme was damned in an Ofsted report, but £105m of funding continued from the Department for Education.

High-profile outsourcing blunders do little to instil public trust – such as the 2012 London Olympics incident, when the army had to be drafted in after G4S couldn’t deliver sufficient security personnel. And in 2016, 17 privately built schools in Edinburgh had to close because of “unsafe defects”, an odd euphemism for walls falling down. Another G4S blunder in 2017 was its running of immigration centres which were deemed “chaotic, incompetent and abusive”.

Outsourcing now accounts for a third of the government’s annual budget (pre-Covid-19) at just under £300bn. In practice we have come full circle – the government is yet again running businesses, but this time at one remove by outsourcing. It seeps into every part of our lives.

Your passport is effectively issued by French company Atos (better known perhaps for wrongly assessing 158,300 disabled and sick people as capable of work thus losing their benefits between 2010 and 2013; it is now embroiled in its own “accounting errors” scandal). Until 2015 driving licences were effectively issued by big computing companies. So great was the mess that the DVLA (the car-licensing authority) bought the IT back in house, but now delays, incompetence and strikes dominate.

Far more important is the outsourcing of catching criminals. There were 5.8 million crimes reported in England and Wales last year, of which 730,000 (13%) were fraud offences, over 80% committed online. But the telephone-operated Crime Survey and senior police investigators estimate there were more like 4.3 million fraud offences, making it far and away the dominant criminal activity.

Do the police hunt down fraudsters? No. It is outsourced, until recently to private US company Concentrix (despite its poor record of delivering on other outsourcing contracts). Staff frequently failed to file (ie, binned) crime reports. Fewer than 5% of all crimes came to court. The overall conviction rate was below 1%. Only one in 700 scams resulted in a conviction (down 62% over the last decade); this is not surprising, given that fewer than 1% of police officers investigate fraud despite the number of cases quadrupling since 2017.

Thus the largest and fastest-growing area of criminal activity has effectively been ignored by both the policeand government – outsourcing at its very worst. (The police are now tendering for new “partners” rather than trying to find the criminal

Yet outsourcing is here to stay

However, for all the greed, incompetence and many blunders, outsourcing is here to stay.

Not only are the current government and prime minister especially obsessive about further expansion, but there is also, as previous Labour administrations discovered, no choice. The role of government has become so complex that it simply cannot be managed internally. Nor should it be – it’s worth remembering that when government ran businesses directly, the outcomes were usually dire.

Having a telephone connected could take weeks; British Rail was a staple for comedians. Gas or electricity breakdowns were common, repairs slow. Water supplies could be erratic, while sewage as often as not was simply dumped in rivers or at sea, only to wash up on the beaches. (Hence after the UK joined the European Union, we were found to have the dirtiest beaches in Europe.)

Moreover, there have been many outsourcing successes. Most important, and for all the many government reports that are nauseatingly self-serving, outsourcing would appear to have resulted in considerable savings overall. These were initially very large, often 20%-30% cheaper than when managed by central or local government. Litter collection has improved dramatically. Private prisons have delivered lower costs and often better conditions. Many simple tasks, once considered core, are now routinely and more effectively outsourced, such as payroll and HR. Outsourced IT has a chequered history, but unnoticed in many areas it has improved services. National Savings & Investments (premium bonds and savings products) was outsourced to Siemens – the savings have been considerable and the service much improved. Even the NHS, one of the world’s most cumbersome bureaucracies, has achieved considerable savings by outsourcing many areas to private providers. Indeed, in residential care, a perennially controversial topic, in many cases private suppliers have been found to provide at least the same level of cover as state-funded operations, but at a lower cost.

Three key lessons for successful outsourcing

Where outsourcing failed it was usually the result of three gigantic errors. First, the private firms were often out of their depth and greedy. An ex-director of one outsourcer told me years ago that the instruction was always to submit the lowest bid, find cheap external expertise afterwards, then hope to squeeze the agreed price higher by bolting on “unforeseen problems” requiring a higher fee. The results of this reckless approach can be seen in the companies themselves.

All of what were once the “Big Six” outsourcing firms – Amey, Capita, Serco, Interserve, G4S and Carillion – have had a torrid history. From 2009 to 2018 only one briefly had a profit margin over 10% (Capita). Two – Interserve and Carillion – went bust. After decades of incompetence and lousy returns for shareholders, G4S was put out of its misery when it was bought by a US company earlier this year. Amey was taken over by Spain’s Ferrovial (which is now keen to get rid of it as soon as possible, leaving just two, both of which, until recently, have been battered. But they, and new entrants, are learning: firstly, to price contacts and risks sensibly and not to leap into areas where they have little expertise; and secondly, to walk away from badly drafted or woolly tenders.

The second error was the utter lack of expertise in the commissioning bodies. Politicians, civil in drawing up complex contracts, especially in relatively new technologies such as wind farms or IT, so inevitably got it wrong. Much derided though the use of consultants has been in aiding the drafting and implementation of these contracts, without them the list of disasters would be longer still.

The third and most important error has been the emphasis on the price. Government rules rightly dictate “best value”, but this was taken to mean “cheapest”. As commissioning bodies slowly learn, they have become better at actually looking at what is being offered. So outsourcing is slowly getting better, although there is far to go. I have avoided discussing the incompetence, waste, theft and nepotism that has occurred during the pandemic – that chapter is still being written. But, ever the optimist, I believe this large bump in the road will prove an exception in an otherwise improving trend.

The final stumbling block remains Parliament itself. There is no single body empowered to look over contracts, the suppliers, or to enforce the often clear findings from the National Audit Office and other bodies. Until that happens, expect more “unexpected” blunders. Meanwhile, given that outsourcing is set to expand even further, and as the terrible history and returns from outsourcing companies look set to reverse, investors can reasonably expect to profit from the largest area of government expenditure. I look at four companies that look well-placed to benefit below.

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How to ensure CEOs' pay is fairly valued

Everyone agrees CEOs should be well paid. It is a stressful job and when they get the big decisions right, they can add hundreds of millions to the value of the business.

But paying the boss 40 times more than the average person would seem a fair reflection of the extra burdens of the job, and that would be half the current differential.

Figures out last week showed FTSE CEOs’ pay down by 17% for the year. According to the High Pay Centre, the average chief executive of one of the UK’s top 100 companies took home £2.7m last year, down from £3.3m in 2019.

Apart from a few Bentley dealers, it is unlikely that many people will be terribly upset about that. Over the last decade, executive pay has just kept on going relentlessly upwards, even though there was very little evidence that overall corporate performance was improving, at least at anything like the same rate, nor were many shareholders seeing spectacular returns.

By last year, the differential between average and CEOs’ pay had soared to a record 86. With average wages rising, and CEOs’ pay falling, that will finally start to narrow, at least by a smidgen. The interesting question is, how do we keep that trend going?

CEOs worth their salt

True, there are a handful of CEOs who are really worth every penny they get paid. Simon Wolfson at Next definitely falls into that category. Dave Lewis should certainly have been paid millions for his turnaround of Tesco – the company was in a dire state when he joined. Pascal Soriot at AstraZeneca is also worth every penny, although since he is already paid more than £15m, he doesn’t really need a raise.

More people could be added to the list, but not that many. In truth, most of the people running the UK’s largest companies are just corporate hacks. At best, they keep a steady ship ticking over, while at worst they spend tens of millions on pointless redesigns, meaningless slogans and vapid strategy reviews.

Corporate pay has become a racket in which a small group of executives and non-executives sitting on each other’s boards continually ratchet up the going rate for everyone. It is great for the handful of insiders who benefit from the system, but it does little for anyone else. Here are three ways we could start to change that trend.

First, hand more power to small shareholders. Institutional shareholders have proved to be hopeless at controlling executive pay. They don’t have the time and resources to devote to it and they are so lavishly paid themselves that they have lost any sense of what a fair salary looks like. It might take a tweak to the law, but we could introduce extra voting rights for individual shareholders on the single issue of approving the chief executive’s pay.
It is one thing to explain a £3m salary to a group of fund managers who also count their earnings in six or seven figures.
It is a lot harder to justify it to a group of shareholders who may never earn that much in their lifetime.

We need more competition

Next, we should open up remuneration committees. Right now the group of people who decide the CEO’s pay are appointed by the chairperson, usually with the help of one of a small group of headhunters.
It is a system that is rife with cronyism and backscratching.

People are chosen because they don’t rock the boat, don’t ask difficult questions and nod through big pay packets without any objections. Why not create a pool of qualified board members, then allocate them to a company by a lottery? It would be random, much like a jury.

Connections and favours would count for nothing and the judgements the committee made would be a lot more objective.

Finally, we should widen the selection pool, so more people from different backgrounds can compete for the top jobs. We are starting to see more women run big companies, for example, but there is still a long way to go before there are as many as there are men. If there was more competition for every CEO role, then we wouldn’t have to pay them so much.

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Market Spotlight: Trading US Core PCE

US Core PCE Up NextThe key data focus today will be the release of the latest US core PCE index. Given that the indicator is used by the Fed in its main inflation calculation, the data holds the potential to create market volatility. Yesterday, we saw advance Q3 GDP come in below expectations at 6.6% vs 6.7% expected. Today, the market is looking for the monthly reading to come in at 0.3%, down from the prior month’s 0.4% result. If data is confirmed in this region, USD Is likely to stay pressured. The extent to which we USD being sold, however, will depend on the comments made today by Fed chair Powell at the Jackson Hole symposium. Again, even if data surprises to the upside today, the moves will be mainly informed by Powell’s guidance.Where to Trade US PCE?USDNOKThe recent test of the 9.1076 level has seen USDNOK fail and reverse firmly, raising the risk of a double top at the level. Price is currently sitting on the sloping neckline of the pattern. With both MACD and RSI turned lower, there are risks of a deeper sell off if price can break the 8.7317 – 8.6822 region, targeting the 8.3947 zone next.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/market-spotlight-trading-us-core-pce"
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Will Jerome Powell lay out a tapering timetable today? Probably not

Once a year, the world's central bankers have a big get-together in Jackson Hole, which is a resort town in Wyoming, near the Rocky Mountains.

They couldn't do it in person last year, obviously. And unfortunately for businesses in the area, they decided at the last minute to pull it this year too, due to the delta version of Covid.

But they'll be chinwagging remotely in any case.

Everyone whose anyone in central banking will be there. But there's really only one man whose words matter.

That's Federal Reserve boss, Jerome Powell...

Jackson Hole and the Horribly Obvious Metaphor

There's an unavoidable economic analogy to be drawn from this year's Jackson Hole event turning virtual at the last minute. And as it's so obvious, I'm by no means the first writer to draw it. But I'm going to, anyway.

Back in May markets were starting to cool off on the re-opening trade. The economy was running hot, all the talk was of inflation, and investors were starting to get edgy about the idea that central banks might rein in monetary policy a bit.

In short, "tapering" – winding down quantitative easing, basically (we've a short video explainer here) – started to become a big concern.

That's when the Federal Reserve said that Jackson Hole would return to being an "in-person" event - all part of the grand re-opening.

In the months since, even as "taper" concerns have grown, the delta variant has also been chomping its merry way across the globe. In broadly vaccinated countries it has slowed things down.

In broadly unvaccinated countries – many of whom had successfully contained previous waves – it has caused a lot of disruption because even one case can shut down a whole area (Australia and New Zealand being obvious examples here).

So at the last minute, the Fed has made the whole thing virtual.

And really, this just encapsulates what markets are wondering about right now.

Will the strength of the recovery so far and the gains seen in the labour market in particular, persuade the Fed to stick with the idea that re-opening is continuing apace, and so it's probably time to think about stepping away from the money-printing button?

Or will the Fed decide that "delta" has thrown a new factor into the mix, and that it shouldn't be overly hasty on doing anything?

And today is the day that everyone is hoping to find out.

Why the market will be hanging on Jerome Powell's every word

Today's the day that markets hope Jerome Powell will spell out if and when the Fed is going to start tapering off its government bond buying, when he gives his speech to the Jackson Hole attendees.

Markets have been thinking that there might be an announcement at the September Fed meeting. Others think it might be pushed back to the November meeting. As for the taper itself, it might start by the end of the year. Or maybe not.

You'll note that none of this involves actually doing anything. This is all talk about the point at which certain things may or will be done. It's very much about managing market expectations rather than stopping the printing presses dead.

That's how sensitised markets have become to the steady flow of money.

You might well think - why does any of this stuff matter?

The short answer is that it doesn't really. If you are a long-term investor then today will be a potentially more noisy day than usual, but in the big scheme of things it'll represent a blip that you won't notice in six months' time, maybe even six weeks' time.

The more in-depth answer is that it's still useful to know what everyone is going on about and why today might (or might not) cause markets to move around a bit more than usual.

It's no secret that investors would prefer it if the Fed came down on the "let's wait and see side" of the ledger today. And history shows that you can usually rely on the Fed to be more "dovish" than markets fear.

The tricky thing today though is that markets are already pricing in quite a relaxed tone from the Fed. I think Powell would really have to push back quite hard against the idea that tapering is imminent in order to give US markets a boost from their current all-time high levels.

It's perfectly possible that he'll do that of course, in which case the US dollar would most likely go down and most other things go up. But he might also feel it's a bit premature to pre-empt the next Fed meeting.

On the other hand, if he's very aggressive and gives the sense that tapering is in the bag, you'd expect the dollar to go up and most things to go down. But I can't see that one happening either.

So I suspect he'll aim for a non-committal tone - one that won't scare markets but that won't have them piling back into inflation trades again quite yet.

On another note – It is odd that one man can have such market-moving power. It's jarring but true to say that the words Powell chooses to use will have far more impact on financial markets than whatever happens in Afghanistan today, for example.

But that's the system we have, so best to understand it and try to work around it.

We'll have more on all this in MoneyWeek magazine in the coming issues. Get your first six issues free here.

from Moneyweek RSS Feed https://moneyweek.com/economy/us-economy/603758/will-jerome-powell-lay-out-a-tapering-timetable-today-probably-not
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Events to Look Out for Next Week

Harmonized Index of Consumer Prices (EUR, GMT 12:00) – The German HICP preliminary inflation for August is anticipated to slow down with the headline at 2.9% y/y from 3.1% y/y.
Pending Home Sales (USD, GMT 14:00) – Pending home sales declined marginally after recording a notable gain in May, with both month-over-month and year-over-year contract signings slipping 1.9% in June.

Tuesday – 31 August 2021

Manufacturing PMI (CNY, GMT 01:00) – Softer July data from China released last week indicated not all is well for the world’s second largest economy. It’s likely a deceleration in economic activity in China will soon spill over to the global economy, as supply chains are further impacted. The NBS Manufacturing PMI is expected to slightly decline to 50.8 in August from 50.4.
Unemployment (EUR, GMT 07:55) – German sa jobless numbers plunged -91k in July, leaving the adjusted jobless rate at 5.7%, down from 5.9% in June. In August it is expected to eased a bit to -34k, however the overall jobless rate remains much higher than before the pandemic, when it stood below 5%, and it remains to be seen how the overall situation is after wage support has been phased out.
Consumer Price Index (EUR, GMT 09:00) –The prel. Euro Area CPI for August is anticipated to grow with headline reaching 2.7% y/y from 2.2% y/y.
Gross Domestic Product (CAD, GMT 12:30) – The consensus or Canada GDP results for Q2 is for growth of 6.7% in an annualized basis.
CB Consumer Confidence (USD, GMT 14:00) – The Consumer confidence is expected to fall to 122.0 from a 17-month high of 129.1 in July. Confidence faces a mounting headwind from the delta variant and resumed mask requirements, while the prior confidence updraft with stimulus and vaccines appears to have dissipated since April. All the major confidence measures fell in August.

Wednesday – 01 September 2021

Gross Domestic Product (AUD, GMT 01:30) – GDP is the economy’s most important figure. Q2’s GDP is expected to slowdown at 1.6% q/q from 1.8% q/q.
Manufacturing PMI (EUR, GMT 07:55) – The final German Manufacturing PMI for August should stay at the 62.7. The so far PMI readings came in better than anticipated and it seems demand is still strong, and data so far indicates a stabilisation at high levels of output, with still good demand dynamics, despite the disappointing headline number.
Manufacturing PMI (GBP, GMT 08:30) – The UK Manufacturing PMI for August is seen unchanged at 60.1.
ADP Employment Change (USD, GMT 12:15) – The key private payrolls number is expected to climb to 575K (a nearly 245k decline on last month’s 330k reading).
ISM Manufacturing PMI (USD, GMT 14:00) – The ISM index is expected to tick up to 59.8 from 59.5 in July and an 18-year high of 64.7 in March, versus an 11-year low of 41.5 in April of 2020, and an all-time low of 30.3 in June of 1980.

Thursday – 02 September 2021

Trade Balance (AUD, GMT 01:30) – July’s Trade Balance for exports and imports are likely to show a rise 10.75 bln AUD from the 10.49 bln in June.

Friday – 03 September 2021

Event of the Week – Non-Farm Payrolls (USD, GMT 12:30) – A 800k August nonfarm payroll increase is anticipated, after gains of 943k in July and 938k in June. Hours-worked are assumed to rise 0.6%, matching the 0.6% July increase, while the workweek holds at 34.8 for a fourth month. Average hourly earnings are assumed to rise 0.3% after gains of 0.4% in both June and July, while the y/y wage gain should hold at 4.0% for a second month. In the last expansion we saw a 3.5% peak for y/y wage gains, in both February and July of 2019, before the pandemic-boost to an 8.0% peak in April of 2020, and the ensuing strength in wage gains that has allowed continued robust y/y increases.
ISM Services & Non-Manufacturing PMI (USD, GMT 14:00) – The key services data is expected to pull back 63.0 in August from 64.1

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Andria Pichidi

Market Analyst

from HF Analysis /265981/
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FOMO Friday: EURAUD Downside Reversal

Late Summer Collapse in EURAUDAs another week winds down to a close and we move deeper and deeper through the summer here and approach the fall, it’s time once again to take stock of the weekly action. It’s certainly been a more volatile week than we’ve seen recently, hopefully a sign of things to come. Looking through the big moves and chatting with traders it seems the trades that are capturing the most attention are those found in the commodities crosses, specifically EURAUD. The pair fell almost 300 pips from recent highs this week before stalling out into the back end of the week. So, if you caught the move, congratulations. If you missed it? There’s always next week! Now, let’s take a look at what caused the move and why this was a great trade.What Caused the Move?Commodities ReboundThe main driver behind the move has been the rebound in commodities currencies this week, which has really helped drive support back into AUD. The Aussie had been on the backfoot over prior weeks as a result of the fresh lockdowns announced in Australia and fears that the Delta surge might de-rail the economic recovery underway there. Along with this, the rebound in USD over recent week had been dragging commodities prices lowers, specifically iron ore and copper which are two of Australia’s main exports. However, the rebound in commodities this week, as a result of an easing of delta concerns and a weakening of the US Dollar, have allowed the Aussie to find its footing once again. Reduced market expectations of a tapering signal from Fed’s Powell at the Jackson Hole event today have turned the Dollar lower near term, which is benefiting high-beta currencies such as AUD.EUR Under PressureOn the EUR side of the coin, the single currency has come under pressure this week over fears of a fresh refugee crisis in the eurozone as a result of the situation in Afghanistan. Given the political strife and tension which typically accompanies such episodes in the Eurozone, there are fears that a fresh refugee crisis will damage the economic recovery, placing even greater strain on the customs union heading into the autumn and winter.So, now we’ve walked through the fundamental backdrop, let’s take a look at the technical picture.Technical ViewsEURAUDThe sell off this week came from the latest test of the 1.6419 level, which continues to hold as firm resistance. However, for now the decline has been stalled into a retest of the 1.6136 level support and with RSI and MACD both still bullish, there is room for the recent uptrend to continue while this level holds. Should price break below this support, however, the next level to watch will be the 1.5969 support.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/fomo-friday-euraud-downside-reversal"
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Current View USD vs EUR, GBP and JPY ahead of Powell

The USD traded positive after a 4-day fall as traders restructured their trading positions ahead of Federal Reserve (FED) Chairman Jerome Powell’s speech at 14:00 GMT. The USDIndex traded above 93.00 towards the end of the New York session, the first uptick for this week. Although US Q2 GDP data failed to hit the target, with growth of only 6.6% (projected 6.7%), FED member James Bullard’s Hawkish comments urging the FED to implement tapering and be more aggressive in controlling inflation clearly helped the USD stay afloat. The USDIndex is now back above 93.00, with the weekly Pivot point slightly above at 93.20. The August high was 93.72. The S1 weekly Pivot level is at 92.68

Meanwhile EURUSD tried to test the weekly R1 Pivot level at 1.1776 today but failed and pressed back closer to the 1.1750 level. It is still traded between the two Mas, namely MA-50 and MA-200. The weekly pivot point is at 1.1720. The publication of the minutes of the ECB policy meeting did not affect the EURO but members were quoted as discussing the need to review how to provide ‘forward guidance’ in setting interest rates.

GBPUSD continued to decline. The combination of the strengthening USD and investor concerns about food chain supply disruptions ahead of Christmas following Brexit is clearly depressing the GBP. GBPUSD fell below the psychological level of 1.3700 and is now below the MA-50. It is also the area of the weekly Pivot point support level. Continued pressure could allow GBPUSD to test its weekly low at 1.3607 in the event of a Hawkish Powell later, while the MA-50 has become an important resistance at 1.3716 followed by this week’s high at 1.3767.

USDJPY broke the 110.00 level by testing 110.20 repeatedly this week but is still struggling to close daily above 110. The MA-200 has been flat for some time, indicating the momentum is currently in a state of consolidation in a small range. Inside bar or harami formations have been formed. The nearest support is the weekly pivot point which is at 109.70 followed by the weekly low at 109.40. A resistance cluster has formed in the 110.22-110.28 zone which is close to the R1 pivot.

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Tunku Ishak Al-Irsyad

Market Analyst

HF Educational Office – Malaysia

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